BUSINESS COMBINATION

1. On December 2015, Killua Ltd. acquired all the assets and liabilities of Gon Ltd. with Killua Ltd. issuing
100,000 shares to acquire these net assets. The fair value of Gon Ltd.’s assets and liabilities at this date
were:

Cash P50, 000

Furniture and Fittings 20, 000

Accounts Receivable 5, 000

Plant 125, 000

Accounts Payable 15, 000

Current Tax Liability 8, 000

Provision for annual leave 2, 000

The financial year for Killua Ltd. is January- December.

The fair value of each Killua Ltd. share at acquisition date is 1.90. At acquisition date, the acquirer could
only determine a provisional fair value for the plant. On March 1, 2016, Killua Ltd. received the final
value from the independent appraisal, the fair value at acquisition date being P131, 000. Assuming the
plant had a further five year life from the acquisition date.

The amount of goodwill arising from the business combination at December 1, 2015 ?

a. P15, 000 c. P5, 000

b. 9, 000 d. 0

ANSWER: B

Consideration transferred (100, 000 x 1.90) P190,

000

Less: Fair Value of net identifiable assets acquired

Cash P50, 000

Furniture & Fittings 20, 000

Accounts Receivable 5, 000

Plant 131, 000

Accounts Payable (15, 000)

Current tax liability (8, 000)

Liabilities (2, 000) 181,

000

Goodwill P9,
000